The test assesses if an investor’s share in a fund is small enough to prevent penalties and maintain the fund’s tax-exempt status.

The Inland Revenue Authority of Singapore (IRAS)  has released Advance Ruling Summary 17/2025 on 1 September 2025, addressing whether a company satisfies the Qualifying Investor Test under Singapore’s Section 13O tax incentive for specific funds.

The test assesses if an investor’s share in a fund is small enough to prevent penalties and maintain the fund’s tax-exempt status.

The Ruling clarified whether an owner (i.e. Company B) meets the Qualifying Investor Test of Section 13O of the Income Tax Act 1947 (“ITA”) under paragraph 5 of the Income Tax (Exemption of Income of Approved Companies Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010 (“Section 13O Regulations”).

Company A is an investment holding company. It is wholly owned by Company B, which in turn is wholly owned by Company C, a trustee of a trust. Companies A, B and C are companies incorporated and tax resident in Singapore.

The Inland Revenue Authority of Singapore ruled that Company B does not meet the Qualifying Investor Test under Section 13O of the Income Tax Act. As the immediate holding company of Company A, Company B is deemed the “relevant owner” since it beneficially owns all of Company A’s issued securities. Although Company B is a bona fide, Singapore-resident entity, it fails the 30/50 ownership threshold under Section 13O(3) and (5).

Consequently, Company B is treated as a non-qualifying investor for the Section 13O tax incentive scheme and is liable to pay a financial penalty to the Comptroller.

Key Reasons

  • Sections 13O(3)(b) and 13O(5) of the ITA provide that a person (“relevant owner”), that either alone or together with his associates, beneficially owns more than the prescribed percentage of an approved company’s total issued securities on the relevant day2 is liable to pay a financial penalty to the Comptroller. However, if the relevant owner is a non-bona fide entity, the relevant owner is not liable to pay the financial penalty. Instead, a person who beneficially owns equity interests of the relevant owner on the relevant day and is not himself, herself or itself a non-bona fide entity will be liable.
  • Regulation 5(3) of the Section 13O Regulations is not applicable as Company A’s issued securities are beneficially held by Company B, a corporate entity. In addition, since Company B is a bona fide entity resident in Singapore, it does not fall within the scope of Regulation 5(1) of the 13O Regulations.
  • Company B beneficially owns all of Company A’s issued securities and is not a non-bona fide entity. Therefore, the Qualifying Investor Test should be applied at the level of Company A’s immediate holding entity, making Company B the relevant owner for the purpose of Section 13O(3) of the ITA.